According to Wikipedia third party processing has “been responsible for the worst horror stories”. Indeed… and yet some third party processing pros are worth mentioning.
If you wish to accept credit cards, you can either open a direct merchant account, or use third party processing.
In order to know what you’re offered, take a look at the footer of the site you consider using. If you see an ISO/MSP indication, you are going after a direct merchant account. Otherwise – third party processing.
Visa, MasterCard, American Express and Discover – all have programs that enable sales agents to market merchant accounts. As always, no standardization exist and each association has named its program differently. Visa has chosen Independent Sales Organization (ISO), MasterCard – Member Service Provider (MSP), American Express – External Sales Agent (ESA) and Discover – Referral Agent Program (RAP). Putting aside closed loop/open loop systems, the essence is identical. Your application will be submitted the an acquirer, for approval, in order to open you a merchant account with same acquirer.
Direct merchant account agents accuse third party processors for:
1. High processing fees – 5% plus;
2. Long and delayed payment schedules;
3. Funds delayed are not FDIC insured;
4. Merchant’s name missing on credit card statements.
Not all accusations are accurate, for example, many IPSPs are now capable of adding through ‘soft descriptors’ the (real) merchant’s name. Moreover, there are cases third party processing is your only choice…
Many startups get rejected when applying for a direct merchant account and lack the knowhow needed to manage direct online credit card processing. Using third party processing functions as an incubating stage, through which volume reaches a point starting a direct merchant account makes sense. Other high risk businesses find it easier to operate under a third party processing umbrella. In many cases working behind a third party processor sets a ‘fire wall’ between the merchant and the associations, which saves the merchant the risk associated with owning a direct merchant account.
Once you are familiar with the different options and better understand each pros and cons you are more likely to make the decision that suits you best.
Gidi Argov, Founder and CEO
Tags: third party processing